U.S. News & World: Reverse Mortgage Defaults, Explained


The demographic of borrowers who are taking out reverse mortgages has gotten much younger, and these younger borrowers are the ones who make up the bulk of reverse mortgage delinquencies, reports a U.S. News & World Report article.

Growing numbers of delinquencies have prompted an industry movement toward implementing a financial assessment for applicants to assess their ability to pay ongoing property charges.


“With rising numbers of seniors expected to use reverse mortgages in the future, creating a more sustainable lending process has become a priority,” the article says.

The article cites data from government housing officials showing that as of July 2011, 46,000 home equity conversion mortgages (HECMs) were reported as delinquent, more than 50% above earlier industry projections, it says.

This means that 8% of all HECMs are delinquent, and through July, lenders had advanced about $250 million on delinquent loans, only $40 million of which had since been repaid, U.S. News says.

Despite an increase in the number of delinquencies, most of them are for relatively small amounts, with more than 40% owing less than $2,000, the article reports. Only 5,300 loans—less than 12%—have delinquencies greater than $10,000, although they account for $91 million in outstanding lender advances.

The trend of younger reverse mortgage borrowers, aged 62 to 65, stems from the recession, Federal Housing Administration officials told U.S. News.

“This group is more likely to be delinquent than older borrowers, with most delinquencies occurring in the first four years of the loan,” says the article.

To curb delinquency issues, the FHA introduced a special counseling program for defaulting borrowers, although participation is still minimal and the success of repayment plans is unclear.

“Maybe only about 10% of those [delinquent borrowers] have gone through counseling,” Barbara Stucki, vice president for home equity initiatives with the National Council of Aging, told U.S. News. And, she added, the ability for borrowers to stick to repayment plans that are developed through counseling is limited, as most are on fixed incomes.

The FHA has yet to release industry-wide guidance for borrower qualifications, but many lenders have implemented underwriting guidelines issued by the National Reverse Mortgage Lenders Association, and one major lender has created its own financial assessment.

Check out the full U.S. News & World Report article here.

Written by Alyssa Gerace

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  • Barbara Stucki claims that only about 10% of those in default have gone through default counseling.  Is this because they have not chosen to access that source or is it also because of a lack of funding? 

    In a RMD comment last week Peter Bell did not make it look like counseling was in serious trouble over a lack of funding but seeing only 10% of those in default after this long of a period have gone through default counseling is quite surprising.  Peter indicated that default counseling had sources for funding from other grant sources than just the $4 million HUD announced the other day.

    It would be nice if either Barbara or Peter indicated if inadequate funding was part of the problem.  I know Peter does not want it to look like counseling funds are inadequate because of the increased lobbying of the CIS but the $4 million goes back as looking awful hollow if the low number of those in default taking default counseling is indeed due to underfunding. 

    With the low repayment results to date and Barbara correctly questioning the ultimate outcome of the repayment program, it seems the possible volume of foreclosures within the next 18 months or so could take us off guard.

  • On the 70th anniversary of the attack on Pearl Harbor, Phil Moeller (with the tag “subprime mortgages”) posts:  “Government housing officials report that 46,000 reverse-mortgage borrowers under the government’s insured loan program were delinquent on their loans as of July. This total is more than 50 percent higher than earlier industry projections and represents 8 percent of all outstanding loans under the Federal Housing Administration’s home equity conversion mortgage (HECM) program.”
    At first that does not read so bad, 46,000 borrowers.  But then as one reads on, it is apparent this is not the number of borrowers but the number of HECMs which are in default.  Then it grabs you that this is not the number of HECMs in default in December but rather JULY.  So are we at 60,000 now? 
    Here is some perspective.  On April 1, 2009, Neil Morse reported in a RMD article:  “There are unconfirmed reports that Fannie currently has 9,000 loans in tax/insurance default….”  On August 30, 2010, (17 months later) John Yedinak reported:  “For the last few years, the number of Home Equity Conversion Mortgages (HECM) in default from a failure to pay taxes and insurance has been hot topic for debate at events around the country.  Estimates from industry experts typically put the number around 10,000, but a new report from the Department of Housing and Urban Development’s Office of Inspector General says there are nearly 13,000 such loans….”  On February 2, 2011, the Orlando Sentinel claims there were 30,000 HECMs in default for taxes and insurance or about 5% of total outstanding HECMs. 
    So here we have all this growth, what is being done about it?  In the February 2, 2011 Sentinel article, Sue Hunt is quoted as saying:  “‘We are just starting to look at the problem and assess the extent of it….  What we have is an accumulation of several years of possible defaults that have never been addressed. The hope is that, by working with people, we will be able to solve most of the problems, and that will leave only a small bucket of them still in trouble.’”  Well, in the December 7th, 2011 article, Mr. Moeller quotes Dr Stucki assessing the progress:  “Maybe only about 10 percent of those [delinquent borrowers] have gone through counseling.”
    Here is what the HUD OIG recommended in his August 25th, 2010 report to Vicki Bott:   “(1) discontinue the practice of deferring foreclosure due to nonpayment of taxes and insurance …; (2) issue formal guidance to servicers regarding loans currently in default due to nonpayment of property taxes and insurance, including requiring the servicers to foreclose if the borrowers do not pay the delinquent taxes and insurance; (3) develop and implement a plan to minimize the risk of future defaults due to nonpayment of taxes and insurance; and (4) develop a tracking and reporting system….”  So what happened?  On January 3, 2011 Mortgagee Letter 2011-01 was issued giving a two year pay back rule and not much more.  We are still waiting for “…a plan to minimize the risk of future defaults….”  Wells Fargo became so impatient it left the industry over the delays.
    It is time to stop the Pollyanna approach to the problem.  It is time for industry leaders to stop dreaming up ways to overcome prospect concerns about the issue and take a proactive stance to get something done.  Recent history shows us the potential liability to lenders is NOT SHRINKING.  Will it be over $400 million by spring?  Will the problem just keep growing until January 2013 with Dr. Stucki telling us that 25% of delinquent borrowers have gone through default counseling and that is it? 

  • Clients who go into default are given info by their lender/servicer regarding how to receive counseling.  It’s up to them to pursue that counseling.  When Barb Stucki says that only 10% have gotten counseling, I’m pretty sure that means that only 10% have asked for it and followed through on it.  It is NOT a funding issue.  Nobody is being turned away who asks for HECM default counseling.

    • rmcounselor,

      Why do you think the response rate for default counseling is so low by those in default especially when it is free?

      On a related issue, you have voiced your concern that too many seniors have not been properly educated on their taxes and insurance payment obligations based on your experience in default counseling.  Seeing that less than 10% of those who are in default status are taking default counseling, does that modify your view?  After all that is less than 0.8% of all outstanding borrowers and only a percentage of that number is making the complaint.  For some it is no doubt false and a simple defense mechanism, some have forgotten, but for others it probably is true.  In any case the number complaining seems to be less than 0.4% of all HECM borrowers.

      While any percentage is unsatisfactory, such a low percentage is not overly worrisome.  If originators fail to cover this issue, it seems the current counseling protocol is ensuring that is getting done.  Defaults for nonpayment of property charges will not evaporate but it is good that we are reminded to be vigilant at reminding seniors of their payment obligations.

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